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Ripple effect from judicial review of commercial tendering

The successful judicial review of the recent Ministry of Health tender for problem gambling services in Problem Gambling Foundation of New Zealand v Attorney-General could have wide-ranging implications for tenderers and Crown agencies alike.

Practical lessons

A number of practical lessons (reminders, really) can be taken from the High Court’s decision.

Procurement documents need to contain all of the information required by the Government Rules of Sourcing – this includes all of the evaluation criteria that the agency will use to assess responses.

If the agency wants to depart from the processes or evaluation criteria set out in the procurement document, it must notify all of the participating tenderers, and adjust deadlines for responses (if necessary).

The integrity of the evaluation process needs to be safeguarded at all times. In particular:

agencies need to have policies in place to assist staff to identify, notify and manage conflicts of interest (as required by the Government Rules of Sourcing)

conflict checks should be conducted and any actual or potential conflicts appropriately managed before any review or assessments of responses is undertaken, and

any guidance or assessment documents given to the evaluators must be consistent with the evaluation method and process set out in the procurement document.

Background

The Ministry of Health issued a request for proposals (RFP) to provide problem gambling services on a regional and national basis in July 2013 and received 32 proposals, including two from the Problem Gambling Foundation (PGF) - the incumbent and the largest provider of problem gambling services.

The PGF was unsuccessful in its two bids, although it was offered two regional contracts for specialist services – services which the evaluation panel did not recommend it should get.

Decision

The High Court set aside the Ministry’s procurement decision not to award contracts to the PGF after finding significant faults and errors in the Ministry’s RFP procurement and decision-making process.

These included the Ministry departing from the procedure set out in the RFP and apparent bias among some of the evaluation panel members. The Court also found that the case could be subject to the full scope of judicial review.

In terms of a potential ripple effect, the judgment:

further signals the High Court’s willingness to intervene in, and to carry out a close review of, government commercial tendering decisions where it considers that the context requires it. This is despite the Court of Appeal view in Lab Test1 all but confining judicial review to cases of fraud, corruption, bad faith and “analogous situations”

highlights that public law concepts and remedies will be applied where government agencies do not follow their own stated tender process or evaluation criteria, or change them without giving appropriate notice or making any other consequential adjustments

confirms that the Government Rules of Sourcing (3rd edition), which replaced the Mandatory Rules of Procurement, have a degree of legal force and that a material breach of those Rules can ultimately lead to the procurement decision being set aside (and the process having to be rerun, or abandoned), and

highlights that those involved in tender evaluation processes are subject to exacting standards, especially when it comes to any suggestion of perceived bias and conflict of interest.

Chapman Tripp comments

It remains to be seen whether the standards imposed by the Court in relation to perceived bias and conflicts of interest are practicable and will take hold.

Whereas the Mandatory Rules required the adoption of procedures to eliminate any potential conflict of interest, the Government Rules of Sourcing require public agencies to have policies that help all staff involved in procurement to identify, notify and bring “sound judgement” to the management of conflicts of interest.

Also, as recognised by the Court of Appeal in Pratt Contractors2 and repeated in Lab Tests, it is inevitable in a market as small as New Zealand that those involved in assessing tenders will have views, based on prior knowledge and experience, about particular tenderers. In Pratt Contractors, the Court accepted that the existence of such views was desirable so long as this did not get in the way of the exercise of genuine judgement in the proper application of the stated evaluation criteria.

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